Let us understand Turn Around of Indian Railways .

With less money in the kitty, Indian Railways has cut its spending on asset replacement by about 15 per cent. The cut is a fallout of the rollback of passenger fares rises. Investment in the replacement of aged assets financed from the depreciation reserve fund (DRF) has been cut by 18 per cent to Rs 7,579 crore. Similarly, the railways have slashed the budget for the development fund (DF) by 20 per cent to Rs 2,991 crore and the capital fund (CF) by 14 per cent to Rs 4,270 crore.

Railway Minister Mukul Roy had rolled back the rise in passenger fares, except those for AC-2 and AC-1 classes, announced by his predecessor Dinesh Trivedi. “This brought down the internal resource generation of the railways by Rs 3,150 crore,” said an official.

The railways had targeted to almost double spending to Rs 19,990 crore under four funds, including the Railway Safety Fund, this year from Rs 10,203 crore in 2011-12. But, with the cut in investment, the spending is now expected to be around 60 per cent more than the revised estimate for 2011-12.

The railways operate various funds to meet the requirement of asset acquisition, construction, replacement and renewal as well as pension payments to employees. These funds are fully or partially financed by railway revenue, budgetary support by the central government or market borrowings, if needed.

The railways maintain the DRF for replacement and renewal of old assets. Appropriation to this fund is met from revenues by charging it to the working expenses of the railways. Apart from that, a contribution is made by production units in respect of the depreciation of their assets. “The railways appropriate to this fund on a need-cum-availability basis instead of doing so in a scientific manner in consideration of the historical cost, expected useful life and expected residual life of the asset,” said a railway official.

The railways had not been maintaining an appropriate amount in the DRF, forcing the creation of a Special Railway Safety Fund of around Rs 18,000 crore in 2001, the official added. Unlike other funds, the Railway Safety Fund will continue to get Rs 2,000 crore this year. That will come from the Central Road Fund, the railway surplus left after the payment of dividend and contribution made by the rail ministry to the Railway Safety Works Fund (maintained by the finance ministry) out of the dividend payable to general revenues.